BrisConn doomed from the start: Bolton

Nicholas Bolton, the only investor who may ever make money out of BrisConnections, says the project was doomed from the start because tunnels are uneconomic for private companies.

The Gen-Y investor who was accused of ‘’greenmailing’’ BrisConnections claims the companies building the Airport Link tunnel ignored realistic traffic forecasts in favour of forecasts that suited their business model.

‘‘A tunnel can cost seven times more to build than an above ground toll road, and a driver is unlikely to pay seven times the toll to travel on it. Accordingly, it is almost impossible to get the economic argument to stand up for private ownership of tunnel infrastructure,’’ the Melbourne University drop-out turned internet millionaire turned celebrity investor told BusinessDay.

‘‘The concerning element is how neatly the traffic forecast seemed to fit the financial model put to investors, and how grossly inaccurate this forecast has turned out to be. It's worthwhile asking why that traffic forecast was selected, and whether there were any less optimistic forecasts available to the Directors at the time.’’

BrisConnections shares went into a trading halt on Monday, November 14, at 0.4¢ each, when the board announced the $4.8 billion project could now be worth less than its outstanding debt, due to lower than expected traffic flows. It is now renegotiating with a 10-bank consortium of lenders. Two directors, Andrea Harcourt and Richard Wharton, resigned on Monday.

Back in 2009, Mr Bolton made front page news when he called a BrisConnections shareholders meeting to vote on winding up the project.

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He could do this because he owned 20 per cent of the company after purchasing 77.8 million units in November 2008 for just $77,800 – and owned a fifth of a $5 billion company.

However, due to the way BrisConnections was raising money, units came with an obligation to pay two further instalments of $1 each.

The mum-and-dad investors who purchased the first unit for $1 watched in horror as their investment dropped to 0.1¢ per share – at which point Mr Bolton would snap it up – and many realised they were still on the hook for thousands more dollars of instalment fees.

Mr Bolton himself was looking at a $154m bill.

After a long court case fighting for the right to hold the shareholder vote, Mr Bolton received a $4.5 million payment on April 15, 2009, from the construction company Thiess John Holland to abstain.

Initially hailed by investors as a white knight buying shares when no one else would, he was quickly dubbed a ‘‘greenmailer’’ for selling the voting rights of his units to defeat the very resolutions he had proposed. It also emerged in court that he had arranged to transfer his units to a family friend before the instalments were due.

Mr Bolton exited the scheme with the money from Thiess John Holland and transferred his shares to a family friend, thus avoiding the instalment payment.

He does not believe any of this had a negative impact on the BrisConnections project.

‘‘I believe my actions facilitated a large number of retail shareholders exiting before they lost further capital, and also brought attention to the fact that this privately funded entity did not need to pursue the building of an uneconomic road at the time. This has not influenced their problem today - a completed road with insufficient demand,’’ he said.

In October 2009, the BrisConnections board voted not to pursue unit holders through the courts for their remaining instalments. Project underwriters Macquarie Bank and Deutsche took control of unpaid units in exchange for covering the instalments and ended up with their current holdings.

Leighton Holdings has written off its $63 million investment in troubled toll road group BrisConnections, and said on Monday this would have no impact on its underlying net profit forecast of $400 million to $450 million for the year to December.